In comments on Friday, Bank of England chief economist Pill stated that the high level of inflation stemmed mainly from external shocks, but there was a risk that higher headline inflation could lead to second-round effects. The overall impact was limited with markets waiting for further guidance. Sterling was broadly resilient during the day, especially given the firm tone in risk appetite and gains in equities as the FTSE 100 index posted a gain of 2.7% on the day. CFTC data recorded a further small decline in short Sterling positions to near 63,000 contracts in the latest week from over 65,000 the previous week, maintaining the scope for further position adjustment if there is a recovery in confidence towards the economy, although sentiment will remain very fragile in the short term.
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The German IFO business confidence index dipped to 92.3 for June from 93.0 previously and below expectations of 92.9. The current assessment was marginally above expectations with a slight decline to 99.3 from 99.6, but there was a steeper retreat in the expectations component to 85.8 from 86.9. The IFO stated that worry lines in Germany are getting bigger with a significant dip in morale in industry and retail. Expectations are also getting more pessimistic, although there is no sign of recession at the moment. German yields continued to edge lower on the day and money markets also moved to price out some ECB tightening with 150 basis points of rate hikes priced in by the end of 2022 from 170 basis points last week. CFTC data recorded an increase in short Euro positions to over 15,000 contracts in the latest week and the largest short position since late 2021.
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18.30 Christine Lagarde Speech
The dollar maintained a slightly less confident tone during the day as Fed expectations were also priced out. The US final June reading for the University of Michigan consumer confidence index came in at 50.0 from the flash reading of 50.2. The 1-year inflation expectations index edged lower to 5.3% from the flash reading of 5.4% while the 5-year index retreated to 3.1% from the flash reading of 3.3%. Revision to inflation expectations triggered fresh doubts over aggressive Fed tightening. St Louis Fed President Bullard said inflation will come down if all goes to plan while the front-loading of rates is a good idea in this situation. He added that he would like rates to increase to 3.5% by the end of this year. Overall, there was a limited shift in expectations surrounding the July policy meeting with markets pricing in around a 30% chance that the July rate hike would be held to 50 basis points. US new home sales increased to an annual rate of 696,000 for May from a revised 629,000 previously and well above expectations of 588,000.
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13.30 Durable Goods Order (May) Exp. 0% Prev. 0.5%
13.30 Nondefence Capital Goods Orders ex Aircraft (May) Exp. 0% Prev. 0.4%